UBS upgrades Tung Kong Properties Fund to 'Neutral' with a target price of HK$35.6
UBS issued a report that upgraded its rating on Sun Hung Kai Realty Fund (SEHK: 823) from "Sell" to "Neutral", raising its 2025-2027 fiscal year dividend per unit (DPU) forecast by 1% to 3%, reflecting its expectation of a decrease in its actual cost. The target price was raised from HK$31.5 to HK$35.6, considering the decline in US 10-year bond yields.
Since the rating of Sun Hung Kai Realty Fund (SEHK: 823) was downgraded to "Sell" on May 15, the US 10-year bond yield has fallen by 58 basis points to 3.9%, reflecting the market's current expectation of a 200 basis point rate cut by the Fed over the next 12 months. Given the more favorable interest rate environment, the bank expects some support for the short-term share price of Sun Hung Kai.
However, the bank remains concerned about the structural outflow of tourist consumption, which is the fundamental face of Sun Hung Kai's Hong Kong retail business. The bank believes that the market has already digested the news of a 200 basis point rate cut by the Fed and a moderate decrease in Sun Hung Kai's DPU, and estimates that Sun Hung Kai's fundamentals may not directly benefit from the rate cut, as 70% of its debt is fixed-rate debt.